CBO: Federal compensation cuts could save billions

Nov. 14, 2013 - 06:00AM
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The government could save about $280 billion during the next decade by paring the size of the federal workforce, spending less on federal pay raises and pensions, and adopting a more conservative inflation gauge to calculate cost-of-living adjustments for civilian retirees and other participants in federal benefits programs, the Congressional Budget Office said in its latest rundown of deficit cutting options.

The update comes as a House-Senate conference committee looks at ways to avoid another round of sequester-related budget cuts next year as well as means for reducing future deficits over the long haul. Both congressional Republicans and the Obama administration, for example, have endorsed replacing the current consumer price index with the “chained CPI” to set COLAs for federal retirees, Social Security recipients and other federal program beneficiaries. By 2023, that shift would save about $162 billion, the CBO estimated.

Many economists agree that the chained CPI is a more accurate measure of inflation, in part because it accounts for consumers’ tendency to switch to cheaper goods as the prices of other items rise.

Critics counter that the chained CPI doesn’t adequately account for health care costs, which make up a larger share of expenses for older people than for the population as a whole. Over time, using the chained CPI to calculate cost-of-living-increases could cost federal retirees thousands of dollars that they would otherwise receive under the standard CPI, according to the National Active and Retired Federal Employees Association.

The group is among more than a half-dozen organizations that last week took part in a protest against the chained CPI outside the White House.

Other deficit-cutting options targeting federal employees have less political traction. Among those outlined by the CBO:

■ Allow some agencies to replace only one of every three workers who leave as a means of cutting the overall federal workforce by 10 percent from its 2012 total of about 2.2 million employees. By 2023, the cumulative projected savings would amount to about $43 billion, the CBO said.

■ Reduce the size of annual across-the-board pay raises that federal workers are supposed to receive under the 1990 Federal Employees Pay Comparability Act. (Since 2011, Congress and the Obama administration have instead imposed a freeze on federal pay scales.) The amount of that raise is tied to a rise in a benchmark known as the employment cost index; cutting each yearly increase by 0.5 percentage points would save another $53 billion by 2023, according to the CBO.

■ Require workers enrolled in the Civil Service Retirement System or Federal Employees Retirement System before this year to kick in another 1.2 percent of their salaries to their pension plans. For FERS participants, the change would hike their share of contributions from 0.8 percent of salary to 2.0 percent; for CSRS enrollees, it would mean an increase from 7.0 percent to 8.2 percent. The projected savings by 2023: $19.3 billion.

■ Use workers’ five-highest earning years — in place of the current system of the three highest-earning years — to calculate their pensions. That would save $3.5 billion over the next decade, the CBO said. A similiar change for military service members would push the total amount close to $6 billion, according to the budget office.